Currency Demonetisation and Future course of Indian Economy

[Marten]

What percentage of the black money will be simply destroyed vs. being deposited? Thankfully I have NO black monies and am not worried. However some family members who had lent some of their savings on loan are really worried those loans are gone. Must be 10-20% of the total. Unfortunately the country is full of hypocrites and I don't see the man with balls of steel being reelected.

https://youtu.be/W-Bjw_SFNdM Check this out for a good analysis on demonetization from Anand Rathi Brokerage. Especially the first 10 mins.

Thank you Sir!.

JJ, why bother? That was a political rant and nothing else. Vodka from Desh continues to be just fine.
Stolichnaya is garbage and destroys fine minds. For example...

[Manish_Sharma]

http://timesofindia.indiatimes.com/Paki ... mpaign=TOI

NEW DELHI: Intelligence agencies vetted the new denominations of Rs 2,000 and Rs 500 notes asserting that its security features will be next to impossible to replicate for Pakistan and organised criminal networks for some time to come.

A top government official without going into the details, told TOI that external intelligence agency Research and Analysis Wing, Intelligence Bureau and the DRI examined the features on the notes being secretly printed for the past six months. The official refused to reveal the number of security features on the notes but said they were difficult to forge.

The intelligence community had earlier informed the government and RBI that Pakistan had a dedicated mint in Peshawar where only fake Indian currency notes, mostly in Rs 500 and Rs 1,000 denomination, were being printed.

Pakistan's intelligence agency ISI, which oversees the mint, uses organised networks including those run by its clients like Dawood Ibrahim, LeT, besides international criminal networks to push fake currency into India.

In a report to government and RBI, intelligence agencies had claimed a few years ago that Pakistan machinery had achieved "zero-error counterfeit capability" in printing fake Indian notes.

According to an estimate, Rs 70 crore worth FICN is pushed every year by Pakistan into the Indian economy, which was used as 'terror fund' and to spearhead disturbances.

MoS for home, Kiren Rijiju, said the government move would lead to closure of fake currency "press" in Pakistan.

[Supratik]

Morarji demonetisation was only for about 8% of the currency. This is for 87% of currency. The next target should be RE and gold.

[pankajs]

Mulayam too is demanding a rollback of the currency exchange program. Looks like Mulla is looking at a big enough loss. Slowly but surely as the initial shock is wearing off more will join.

http://www.hindustantimes.com/india-new ... HdSbM.html
Mayawati, Mulayam liken currency ban to emergency, demand rollback

Behenji says it is anti-dalit and anti-poor.

[cdbatra]

Will this lead to deflation or much lowered inflation 6/7 months down the line remains to be seen.
I did some analysis of previous demonetization under Morarji Desai in 1978 and to my surprise there was hardly any impact on inflation. In fact CPI went up slightly.
Here is the link :- http://www.inflation.eu/inflation-rates ... -1970.aspx

But then 2016 economy has a very different dynamics ... Digital economy and all

Sorry wrong link sent earlier this is monthly CPI data for 78 and 79

http://www.inflation.eu/inflation-rates ... -1978.aspx
http://www.inflation.eu/inflation-rates ... -1979.aspx

This shows temporary dip in second half 78 and first few months of 79..

[Karthik S]

A good explanation about the effects of demonetization.

https://www.youtube.com/watch?v=W-Bjw_SFNdM

[pankajs]

Behenji says it is anti-dalit and anti-poor.

Bhenji forgot to tag is as ant-muslim. Not good when she is seeking their vote.

[chetak]

Here's what you will have to fill, while exchanging your Rs. 500 and Rs. 1000 notes.

[JohnTitor]

I don't think this is true. I know of big banks that lend on both portions. They issue two cheques when the property is to be registered. One is the white portion, the other black

Sir with respect I think that makes no sense at all. Which builder will take a cheque for the black amount? Doesn't it make the whole exercise of black money futile?

Its not so much the builders, but other sellers like you or me. I'm not sure for the entire reason but this was explained to me by someone who's job was to issue the loan. It was a PSU bank. Perhaps the below is the explanation

This is done not to keep Black money, but to avoid stamp duties. They do not register for the entire amount and pay stamp duties. They do part of it and the other part, they take as payment towards amenities but all is accounted.

[suryag]

If these guys had known before hand they would have all produced movies and recycled 100cr/movie. Another route is to basically catch hold of small time restaurants and show inflated sales and convert the colour but this is going to help only 8-10cr brackets, the ones with 100s/1000s of crores will find it difficult. The temple scheme is ingenious, deposit all money in hundi of non endowment temples and take control of the management and then award fake works to your fake companies and do away with 30-40% tax. this move was a lightning strike, if not anything the economy size will increase with banks having more liquidity at their disposal

[panduranghari]

Morarji demonetisation was only for about 8% of the currency. This is for 87% of currency. The next target should be RE and gold.

Both should become cashless AND also attract zero tax. Only then it will be successful.

[RajD]

I still don't understand why the 2k note.

Increasing denominations are a problem, not today but a year or two from more.

I wish we could have 100 as the highest denomination and everything that needs more be done digitally.

Jab 2000 ki note milegi tab stock karoge na?

Govt will print it in very less numbers. For example, no bank is giving 2K notes as exchange today.

No sirji,
Most of the banks are freely issuing notes of Rs. 2000 denomination as per the rules. Either by way of exchanging the old notes worth 4000rs. by filling up the declaration form or you could withdraw Rs. 10000 from your own savings ac. No problem at all. I got them issued this afternoon like many other people. Noteworthy is that all ATMs were close today also. on the contrary, the new Rs.500 notes were conspicuous by their absence today. The staff in my bank had no clue when they would be available.

[rahulm]

The best case scenario for the government is nobody deposits the BM and therefore, government (RBI) writes off the entire liability. This won't happen but a substantial liability write off should happen. Nice winter cleaning for the economy.

Shouldn't RE prices be corrected by the corresponding cash component used to acquire the asset assuming 100% of the transactions cash component has vaporised? Thanks

[rahulm]

Stamp duty can be avoided because of the delta between government and market rates. If, both these were the same or very close, avoidance wouldn't be possible.

GOI should, therefore, recliabrate government rates periodically say every quarter. This can be can by algorithm and will effectively disincentives the cash component. But, real estate is a state subject and that's the issue. Monetary policy being a central subject, NaMo could pull this off. For any initiative that is on the concurrent or worse,state list, it's not easy for him.

Perhaps, a constitutional amendment to move police, RE, law and order to the central list for a decade or so.you centralise for control and de-centralise for efficiency. Right now we have neither.

[saip]

In the mean while..
SC to hear plea against demonetisation next week

Any clue on how this would end? Are there any legal routes like ordinances/acts which needs to be promulgated before de-notifying a denomination of currency? I don't think Modi & co have missed on these steps if I am to believe the news reports on the "planning" involved here. The court has conveniently moved the case for hearing to be next week (provided the registrar of the court admits this as a plea), and gives it a number for listing.

Unlike the one rupee note issued by the Govt of India and signed by the Secretary of Finance, all other notes are promissory notes issued by RBI and signed by the RBI Governor. The question is can one cancel a promissory note unilaterally.

[Philip]

Thankfully I possess no tainted money at all.However my decades of experience and interaction with govt.,babudom,industry,bankers,entrepreneurs ,et all convince me that unless there is a radical reversal of attitude from the very top,Mr.Modi's
good intentions will not produce the desired results.Greater transparrncy and accountability in
govt. And govt depts.is an absolute.
As a test,feedback from BRF members after a few
weeks about demands for bribes from
politicos,babus,govt. employees,etc.with
discretion,would be most interesting.
Incidentally,Kerala now ruled by the Left is said to have the least corrupt admin.!I know of one case ehen they were last in power where an approval for a project cost the party just two cups of tea!

[Yagnasri]

They are not being canceled. They are being replaced due to security and other reasons. I already posted before about the possible arguments on SC case. Please look into that.

[chandrasekaran]

In the mean while..
SC to hear plea against demonetisation next week

Any clue on how this would end? Are there any legal routes like ordinances/acts which needs to be promulgated before de-notifying a denomination of currency? I don't think Modi & co have missed on these steps if I am to believe the news reports on the "planning" involved here. The court has conveniently moved the case for hearing to be next week (provided the registrar of the court admits this as a plea), and gives it a number for listing.

Unlike the one rupee note issued by the Govt of India and signed by the Secretary of Finance, all other notes are promissory notes issued by RBI and signed by the RBI Governor. The question is can one cancel a promissory note unilaterally.

How is this cancelling ? People can get the new one with the same promissory note in-lieu of the old one. If we extend your argument, then RBI can never take back soiled notes

[LokeshC]

So as expected, justices are getting involved. Modi must have gamed this. Lets see how this plays out.

[pankajs]

SC listed it for after <x> days means that they are most likely posturing for the benefit of GOI/Modi. By the time the hearing comes up most if the mangos would already gotten the switched currency. So what will be left to do after that hanji? If they really wanted to stop it NOW was the time.

This is plain and simple posturing by the SC. They want the Modi led GOI to give them some bhav given the recent cold war.

[saip]

They are not being canceled. They are being replaced due to security and other reasons. I already posted before about the possible arguments on SC case. Please look into that.

Semantics. After Dec 30th, they are scraps of paper. Here is my argument :"I gave you money and you gave me promissory note. It is not for you to say that I must bring the promissory note to you so that you can give me new one'

In the case of soiled notes, what happens if I do not exchange it, they are still valid. People may not accept them but I have the right to exchange it with the banks when I feel like it. Here I (the owner of the promissory note) am calling the shots and not the issuer.

BTW I am 400% behind this this demonetization. I have no problem with it as I always used legal means for all my transactions in India. I am happy that lots of politicians are throwing hissy fits about this. I heard that Jagan (in andhra) has containers full of these notes.

[disha]

^^ SC can go and suck thumb. They neither have constitutional or legislative powers to sit on this issue. The executive manages the finances. They can do well to deem fit what they do with the finances.

Otherwise after every budget., one can file a case against GOI for SC to intervene. Or after a surgical strike., ask SC to intervene. SC has to take this up for hearing since somebody filed a complaint., what it best can do and reject the case. However this also points out the flaw in SC process., any mullah-yam-and-mamta can bring case against the GOI however frivolous it is right to the SC doorstep. Next thing they need to do is call Teesta - so that a phone call will fix it. The precedence is already set.

[disha]

^^SaiP ji' you are getting a new promissory note in lieu of the old one. If it is accounted for. Denominations do not matter. What GOI is saying is bring in 2x1000 or 4x500 notes and take a new 2000 denomination note. But it has to be accounted for. If you cannot account for it., you have broken the law (tax law) and you can still exchange after paying penalties.

SC, Maya, Mullah-yam, Mamata can now go and suck thumb.

[pankajs]

If we are being technical, there is something called as *callable* <Note/bond/security/instrument/whatever else you want to call it>. Such an instrument gives the *issuer* the right to call in the instrument at his will. There may be trigger conditions or just a blanket call option attached. I can't say for certain but this could fall under the *callable* category.

GOI/RBI just exercised "their right to call".

[Atmavik]

Has anyone figured out what to do in Massa land. Mom arrived from desh last month and has Rs. 5k. i was hoping to go to SBI in DC but looks like it will not work out.

[pankajs]

Send it back to India with an Authorization letter. One can just hand it over to some to get it cycled via their account.

BTW, time till March 2017 (Check for the exact cutoff). From Jan 2017 onwards RBI will change it but will need a valid reason. Out of country is good enough reason.

[JTull]

Has anyone figured out what to do in Massa land. Mom arrived from desh last month and has Rs. 5k. i was hoping to go to SBI in DC but looks like it will not work out.

https://www.icicibank.com/Personal-Bank ... ?#toptitle

If you have OHD banknotes in India, you may authorise in writing enabling another person in India to deposit the notes into your bank account. The person so authorised has to come to the bank branch with the OHD banknotes, the authority letter given by you and a valid identity proof (Valid Identity proof is any of the following: Aadhaar Card, Driving Licence, Voter ID Card, Pass Port, NREGA Card, PAN Card, Identity Card Issued by Government Department, Public Sector Unit to its Staff)

[saip]

Has anyone figured out what to do in Massa land. Mom arrived from desh last month and has Rs. 5k. i was hoping to go to SBI in DC but looks like it will not work out.

I called the SBI, San Jose. But they said the bank is chartered in CA and as such can not accept deposits in rupees even though it is a subsidiary of SBI, India. I was thinking if the Indian consulate has any way of accepting these even if as donation for PM's relief fund. I have 10k.

[Paul]

While depositing or exchanging 500 or 1000 notes in the Bank or Post Office, if you asked to provide ID and PAN copy, kindly attest the same and write a note that you are depositing so much amount on the date..... There are chances that unsigned PAN and ID proof copy may be photocopied several times.
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX


 Came in from a friend.........................................Yesterday after the flash news, I was in standing in a queue for taking money from ATM, there was one business man who was standing behind. He was on the phone with an IOB bank manager about exchanging his black money of 1.x crores of ₹500/1000 notes. The manager replied to him not to worry and he could easily change the money with the id card of other persons who are exchanging amounts in banks.
Make sure to write the purpose clearly,on the copy of id , with amount value and date it and sign it before giving it to the banks so that it's not misused.


REQUEST ALL TO SHARE THIS

[Yagnasri]

They are not being canceled. They are being replaced due to security and other reasons. I already posted before about the possible arguments on SC case. Please look into that.

Semantics. After Dec 30th, they are scraps of paper. Here is my argument :"I gave you money and you gave me promissory note. It is not for you to say that I must bring the promissory note to you so that you can give me new one'

In the case of soiled notes, what happens if I do not exchange it, they are still valid. People may not accept them but I have the right to exchange it with the banks when I feel like it. Here I (the owner of the promissory note) am calling the shots and not the issuer.

BTW I am 400% behind this demonetization. I have no problem with it as I always used legal means for all my transactions in India. I am happy that lots of politicians are throwing hissy fits about this. I heard that Jagan (in andhra) has containers full of these notes.

All notes, except one rupee note, are promissory notes guaranteed by GOI. Now GOI is asking people to deposit those notes and take other notes. Legally it is permissible as long as such action is not arbitrary in nature and the holder of the notes is not losing any money. Please check my post on legality before wherein I have stated how this action can not be termed as unreasonable and arbitrary. Of course, SC may do some rubbish in this case. But my gut feeling is they are not going to do so.

Jagan has huge cash reserves. I love to know how he plan to change those now.

[Sachin]

if you asked to provide ID and PAN copy, kindly attest the same and write a note that you are depositing so much amount on the date..... There are chances that unsigned PAN and ID proof copy may be photocopied several times.

My understanding is that no ID proof xerox copy has to be given. I show the original ID proof, but note down the ID Proof and the unique number in the ID proof in the form. I was just wondering what is the procedure, if I deposit the money in a bank in which I have an account and a unique customer id??

[kmkraoind]

Jagan is the chap who declared 10,000 crores BM during amnesty period. Its the highest single amount that came. I think, after prolong court cases, and his investments in Prakasham has gone kaput (he thought he will become CM and can locate new capital in Prakasham Dist, and he his coterie brought lakhs of acres). He could not recapitalize his coffers after the election losses. Even if has some amounts, NaMo will not use Brahmastra on him at this juncture. Alive (yet weakened) Jagan is needed to balance CBN.

[Marten]

The talk of 200% penalties are targeted at specific targets. All companies will be able to switch the currencies without question. Small business will also be able to do so, provided the monies are within reason (let's say half or so of what they claimed was their turnover). Any more and the entire question about sources will come in.

However, this is not the target of the exercise. It is the politicians who brought back their war chests:
For folks who were analyzing:
A. the inexplicable reasons for allowing the rupee to drift lower over the last two years before the 2014 elections.
B. the reason that most deposits from St Kitts Kilda or indeed Swiss banks went for a long walk after 2014!
Here you have the answer.

PS: imvho, individuals who deposit 25/even 50 lakhs will not be pursued unless a pattern emerges where cohorts appear to be doing the same. The IT crooks hardly have time to fix their own games at the moment - who do you think will be doing the hiding while NaMo is doing the hunting!
PPS: Good riddance to RR - read between the lines about why this was not done by March.

[Deans]

How about if the Government offers to buy these defunct notes at 10 paise to the rupee, no questions asked? In effect whiting at 90% tax.

That is effectively what they are doing. There is a 200% penalty payable on undisclosed income (high value notes deposited which are not consistent with declared income). The tax rate is 30% (actually 33% less effect of slabs) and a 200% penalty on tax makes it 90% tax, or 10p to a Rupee.

[Vamsee]

(All numbers rounded up for convenience)

Indian economy = $2 Trillion
Fiscal deficit = 3.5% of GDP = $70 Billion

Now as per RBI ~$250 Billion are in 500 & 1000 rupee notes in circulation which need to be exchanged for "new" notes

*If* 10% of that amount (~$25 Billion) is black money and is not deposited in banks, what will happen? Next year RBI will write-back that amount.

Usually RBI gives a fat dividend every year to Govt from its profits. What will happen if they decide to give this $25 billion as dividend to Govt?

boom...in one shot 1/3rd of fiscal deficit is wiped out.

What if 20% of this amount is black money? well 2/3rds of fiscal deficit is wiped out....

you get the picture

--Vamsee

[Suraj]

In the mean while..
SC to hear plea against demonetisation next week

Any clue on how this would end? Are there any legal routes like ordinances/acts which needs to be promulgated before de-notifying a denomination of currency? I don't think Modi & co have missed on these steps if I am to believe the news reports on the "planning" involved here. The court has conveniently moved the case for hearing to be next week (provided the registrar of the court admits this as a plea), and gives it a number for listing.

Unlike the one rupee note issued by the Govt of India and signed by the Secretary of Finance, all other notes are promissory notes issued by RBI and signed by the RBI Governor. The question is can one cancel a promissory note unilaterally.

They are not canceling anything. The current Rs.500 and Rs.1000 notes just are not legal tender. But they are authentic IOUs that let you exchange them for legal tender, provided a) they are authentic and not Paki maal and b) you provide identification. No court can stop it because no law was changed. It's no different from showing up at the bank with a tattered but authentic Rs.500/Rs.1000 note and asking to replace it with a fresh one. You have the same requirements then.

[hanumadu]

15 lakh crores of 500/1000 currency in circulation. If 20% is recovered as black money, that's 3 lakh crore. Our NPAs are 10 lakh crore. This shows the scale of our NPAs and how badly it is fking up our growth.

[Suraj]

You are forgetting one important part, IT department simply doesnt have the human resource.

What human resources do you need for an algorithm to flag the bank accounts?

Yes, a lot of people are simply not thinking this through. The onus is not on the IT department. It's on 'you'. They can apply a heavy hammer and anything that seems 'irregular' can be flagged. It's upto YOU to prove that you are not reporting disproportionate assets. They can simply freeze anything deemed irregular and YOU have to prove everything is ok to be able to withdraw it. It's not like IT department has to have a heart attack rushing to clear everyone then and there.

The beauty of this approach is that GoI cleanly reversed the balance of power upside down. They WILL get every piece of money back. Well, everything that's no destroyed. Everything that's abandoned is 'free' liability-less deposit within the banking system. Even for valid deposits, they skim off a large margin off the top as tax penalty. They have no rush to hand out all the new currency back. In fact the very basis is unlimited deposits, limited withdrawals. People are thinking, it will just be the same BM economy in new currency. Nope. All new transactions have to follow GoIs tracking requirements, cashless transaction basis, effectively whitened everything.

I wish people would stop talking about how BM folks are cleverly laundering Rs.10,00,000 or something. We are talking about approx Rs.20,000,000,000,000 here. No one seems to consider the time complexity of expanding limited hacks to such scale. We're not talking even 10x or 100x here but million-x or more scaling of any hack.

It's very funny and gratifying to read of new updates as GoI announces 'sorry, railway ticket approach won't work'. 'nope, cant recycle using air tickets', 'nope, cant stuff hundis either - we're watching'... meanwhile all the fatkats run around in a panic looking for even more creative approaches GoI just leisurely raises a finger and shuts each down. And meanwhile the clock ticks down further. This vermin hunt is super gratifying. GoI should make it a point to print daily updates on what creative new approach was uncovered and closed. I'm sure they can use up an entire centerfold section of all newspapers on a daily basis describing each day's vermin hunt creative catches. The story will go on for months. It will be great publicity and political theater to attract the common man's support seeing ways the vermin were caught each day.

[Shaktimaan]

My main takleef is that the IT Department has played a huge role in the creation and spread of black money over the years. And now that very same group of people are in charge of investigating the incoming deposits?

[Deans]

Bank account with near ZERO balance suddenly getting 2 lakh will trigger alert. No respite for those who think they can get away by using JDY. 2.5 lahk limit is for suckers.

What I'm trying to say is that govt "might" turn a blind eye to these small transactions for the reasons I've mentioned above.

I think both points are correct - I've checked with a couple of senior banker friends.
All it takes is 1 depositor to not return money, or squeal to IT Dept and the game is up. GOI will then go after the original black money holder
AND allow the small fry to keep the money after paying say a 30% tax, or confiscate the amount after allowing the smaller depositors to make
some withdrawals. Either way, the big fish is screwed and the amount shared between GOI and the poor.